Construction sector drives job creation in Morocco

03 August 2010

With the construction industry driving the country’s economy forward, Rabat has invested heavily in tourism and public infrastructure projects for long-term growth

In numbers

1,100km: Total length of Morocco’s motorway network, including the new extension

$38.3bn: Value of construction projects planned or under way in Morocco

Source: MEED Projects

Journey times from Tangier to Morocco’s southern coast have been halved with the opening in June of a 231-kilometre extension to the national motorway network, which now links Marrakech to the coastal resort city of Agadir.

The new route, which crosses the High Atlas mountains and includes a 500-metre tunnel, represents a MD8bn ($950m) investment. It should produce immediate economic benefits by linking two of the most important tourism destinations in the country.

As impressive as the scale of the project has been the speed in which it has been implemented. The road was built in just four years, despite the disruption caused by a financial crisis at Planium-Mostagradnja, the Serb contractor entrusted with the final section of the route.

The highway is expected to produce a good return over the longer term, with toll charges imposed after an initial three weeks of operation. Its opening extends the total length of the Moroccan motorway network to almost 1,100km.

Employment market in Morocco

Work was broken up into a number of sections. Some were awarded to local contractors, including Houar, Seprob and SNCE, while others went to foreign groups such as Dogus from Turkey, Portugal’s Technovia, Covec from China, and Kuwaiti firm Burgan.

Local firm El-Hajji stepped into the breach when the Serb contractor ran into problems.

The project exemplifies the important contribution that construction now makes to the Moroccan economy: some 85,000 workers, mostly nationals, were employed in the building work.

This is also a reflection of the wider importance of construction to the employment market as a whole. The National Federation of Construction and Public Works Companies estimates that as far back as 2006, the industry employed some 800,000 people. In terms of economic output, that year the sector accounted for 6.2 per cent of gross domestic product (GDP).

More recent figures are not available, but it seems likely that its weight within the economy has since increased markedly, as Morocco is investing heavily in the development of major new real estate and tourism projects.

According to regional projects tracker, MEED Projects, there are currently $38.3bn-worth of construction schemes planned or underway in Morocco, the majority of which are resorts or other tourism-related schemes.

Admittedly, the past year or so has seen a slowdown in the construction industry, with some projects put on hold. This is partly because of the economic crisis in Europe, a key source of tourism and even retirement investment.

The strength of Morocco’s domestic economy may help to keep projects on course

Problems have also been caused by the financial difficulties in some Gulf economies, from where investment groups had been backing leisure and real estate ventures in Morocco. 

The largest example of this is the $3bn Amwaj development planned for the Bouregreg valley in Rabat. The development stalled following the withdrawal of Sama Dubai, formerly Dubai International Properties, which had been one of its main investors.

In such a climate, the role of government becomes particularly important for the construction industry, sustaining a significant flow of work through major public infrastructure projects, such as the Agadir-Marrakech motorway. State guarantees also play an important role in underpinning the development of affordable housing projects for lower income Moroccans: another significant area of work for the local construction industry.

Projects that were less advanced when the crisis began may have greater difficulty in getting off the ground

But in the long term, the private or commercial sector also appears set to continue to grow, albeit at a slower pace than originally been envisaged. Many large projects are still set to go ahead.

For example, work on a $116m Four Seasons hotel in Marrakech is still continuing on schedule, with completion of the property targeted for the end of this year.

Contrasting construction schemes in Morocco

The contrast between this development and the Amwaj scheme points to the factors that may sustain some big construction programmes in Morocco while causing others to languish.

With a 78 per cent stake, the dominant shareholder in the Four Seasons project is Kingdom Hotel Investments (KHI), which is wholly owned by the giant, and financially solid, Kingdom Holding Company of Saudi Arabia’s Prince Alwaleed Bin Talal al-Saud. The company has accumulated a diverse global portfolio of investments and has worked closely with the Four Seasons group over many years.

Moreover, the project itself is limited in scale, aimed at the luxury end of the market, with a strong focus on high-quality design, local culture and the environment. This should help shield it from the toughest cyclical impacts of the global downturn.

By contrast, the Amwaj scheme is hugely ambitious, proposing a six-phase development of an entire new urban district, covering 5,000 hectares of land. The plans include residential areas, hotels, a yacht harbour, water gardens, offices, a conference centre and parkland.

But such a gigantic new scheme, in a city which has not hitherto been one of Morocco’s most popular tourism or real estate hubs, was always going to pose a major test in terms of marketing capacity and confidence. Moreover, the scale of the scheme required huge investment or fundraising capacity on the part of Sama Dubai and its partners.

Sustaining progress in Morocco’s construction projects

The ability of investors to sustain progress on a construction project in troubled times depends largely on the scale of the scheme and how carefully it is targeted. For example, in April last year, Dubai’s Emaar made a point of stressing that work on the first phase of the Tinja scheme – to build a complex of villas and townhouses in Tangier – would be completed as planned. Earlier this year the development was still on course.

But the entire scheme has only 300 homes, representing a relatively limited risk in business terms. The marketing of the project was also sufficiently advanced to offer a measure of protection from the downturn. As early as spring 2009, Emaar management was able to report a good response to its sales campaign.

Projects that were less advanced when the financial crisis began to squeeze international investors may have greater difficulty in getting off the ground.

Since late last year, the Richard Ellis Global Gaming Group has been looking for investors for Mansour Lake Village, a residential and tourism resort planned for the oasis town of Ouarzazate. Consultants have been recruited for the $610m scheme and the government is subsidising the acquisition of land, but in the difficult economic environment, international gaming industry investors have been cautious about committing to new projects.

A further test of the extent to which confidence is recovering will come later this year, with the award of engineering and construction contracts for Emaar’s planned skiing and golf resort at Oukaimeden in the Atlas mountains.

Consultancy and project management contracts have already been signed, with Turner Construction of the US, PGM and TSH. The scheme is budgeted at $1.4bn. Its economics are underpinned by an unusual multi-seasonal appeal. While the main customers for warmer weather golf breaks are likely to come from Europe, the skiing facilities are more likely to appeal to domestic consumers – a point that helps to enlarge the potential market for the venture, especially as consumer spending in Morocco remains on a long-term upward trend that has barely been dented by the global crisis.

Questions over the scale and competitiveness of projects in difficult times are not confined to the leisure and upmarket residential property markets. The slowdown in world trade and shipping has raised doubts about the likely pace of development for the planned second phase of Tangier’s new deepwater container port.

The port aims to capitalise on Morocco’s strategic location at the gateway to the Mediterranean, acting as a transshipment hub for trade flows between Europe, the Middle East, Africa and the Americas. A first section of the port is already in operation, but negotiations with potential operators of a second phase proved difficult. Eventually the government decided to carry forward the scheme itself, signing a design and construction contract for phase II with the French group Bouygues.

But the project has nevertheless suffered delays. Completion of a fourth container terminal, originally planned for next year, has been set back by anything from one to three years. Forecast costs for the terminal have jumped from $1.7bn to $2.3bn, which will also impact on its viability and competitiveness in a sector where price competition is intense.

Long-term prospects for Morocco’s economy

Still, taking a long-term view, it seems almost certain that the whole of the second phase will eventually be completed. Morocco’s geographic location offers a distinctive opportunity to compete in the global container transshipment business, with spin-off benefits in terms of the transport options available to local exporters and importers.

Indeed, the strength of Morocco’s domestic economy – as opposed to foreign tourism and investor demand – may help to keep construction projects on course. The local Al-Omrane al-Boughaz is planning a development of 30,000 houses and associated facilities between Tangier and Tetouan. Work has not yet begun, but the prospects for a final go-ahead may be bolstered by the fact that the scheme is aiming to cater for the domestic housing market, which is strong, underpinned by government subsidies for the least well-off and by the rapid growth of mid-market demand from the salaried middle class.

Morocco needs such schemes to go ahead, not just to sustain the growth of the construction sector, but also to maintain its job creation drive, to meet the needs of its rapidly growing population.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications